As some of the largest subprime mortgage lenders teeter on the edge of bankruptcy, ABS investors are turning an increasing amount of attention to the quality of servicing those loans might be receiving.

Based largely upon a grim liquidity outlook, Fitch Ratings and Moody's Investors Service last week lowered the subprime servicer ratings of both Fremont General Corp. and New Century Financial Corp. to the equivalent of "below average," while Standard & Poor's placed both on a negative watch. The ratings single out the two top-five subprime mortgage lenders as maintaining the lowest-rated servicing shops under surveillance by the rating agencies. Moody's on Feb. 22 placed the servicer ratings of Accredited Home Lenders, Ameriquest Mortgage Co., Novastar Mortgage and Specialized Loan Servicing on watch for a downgrade.

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